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General Motors is reported to be in preliminary talks to buy Chrysler, the struggling US arm of DaimlerChrysler. GM and Chrysler parent DaimlerChrysler declined to comment.
Shares of DaimlerChrysler rose in reaction to the reports. GM shares slipped at first but then moved higher.
The Chrysler Group sells Chrysler, Dodge and Jeep vehicles.
Speculation about a possible sale or spinoff of Chrysler has built since DaimlerChrysler chief executive Dieter Zetsche said last week that all options were open for its struggling North American unit.
DaimlerChrysler shares were up 4.1 per cent to US$73.11 (NZ$104.85) in afternoon trading on the New York Stock Exchange. Shares in GM, the world's largest automaker, were up 14c at US$36.58 (NZ$52.46).
Analysts questioned whether GM would benefit from an outright merger with Chrysler, since both companies are struggling with excess production capacity, sliding sales and a heavy exposure to trucks and sport utility vehicles.
The talks come four months after GM broke off talks with Renault SA and Nissan Motor Company.
GM and DaimlerChrysler have an ongoing joint venture with BMW to develop a hybrid system that will be used in an upcoming version of the Dodge Durango SUV.
David Feinman, a fund manager who specialises in distressed debt with Havens Advisors, doubted that GM would complete a deal to buy Chrysler. "If they do merge, there would have to be massive stream-lining and there would be hundreds of thousands of more jobs lost," he said.
"The only one to benefit would be Daimler because they would get rid of Chrysler," he added.
David Healy, an automotive analyst with Burnham Financial Group, said: "My own feeling is that a full merger wouldn't make any sense.
"I think there's room for cooperation on joint ventures where, for example, one company lacks a model or a diesel engine - why do it twice rather than once as a joint venture?"
Chrysler announced a restructuring plan last week that will cut 13,000 jobs, close an assembly plant in Delaware and reduce production shifts at other facilities.
Chrysler, which lost over US$1.4 billion (NZ$2.01 billion) in 2006 after running up a costly inventory of unsold vehicles, is aiming to return to profitability in 2008 on the strength of new models and a lower cost base.
"We often have discussions with automakers routinely. We don't comment on speculation regarding discussions," said GM spokesman Tony Cervone last week.
DaimlerChrysler, the world's fifth-largest automaker by global sales, also declined comment. "We have said everything there is to say on this subject," a spokesman said.
- REUTERS
